Can you pay a credit card with a credit card?

Technically, you can pay a credit card with a credit card, but whether or not you should is an important question.

If you’ve ever wondered how you can rack up more credit card rewards, you may have asked yourself the question, “Can you pay a credit card with a credit card?”

The short answer is no, at least not in that way. Credit card issuers typically don’t accept credit cards as a regular payment method. Rather, they generally request that you make your payment using your checking or savings account, or with cash or check at a local branch, ATM, over the phone or by mail.

But if you’re carrying a balance on a high-interest credit card, you can do what’s called a balance transfer.

“Balance transfers allow you to take the balances on your existing cards and transfer them to another credit card,” says Aaron Aggerwal, assistant vice president of credit cards at Navy Federal Credit Union.

Several credit cards offer a 0% introductory APR on balance transfers for a set promotional period. But before you try it, there are a few things you should consider.

With a promotional rate that comes with many balance transfer cards, you can reduce the amount of finance charges associated with the balance and better position yourself to pay off the debt, Aggerwal says.


  • What to know about balance transfer cards
  • Balance transfer cards aren’t always the best option
  • An alternative to balance transfer cards

What to know about balance transfer cards

Doing a balance transfer usually only makes sense if you’re transferring the debt to a card with a promotional intro rate or a lower interest rate. If you decide to apply for a balance transfer card, you may end up with an interest rate as low as 0% for a set amount of time.

And if you can pay off your balance within the promotional period, you can save both money and time as you eliminate interest from the equation.

But many major balance transfer cards charge a balance transfer fee, typically 3% to 5%. So if you’re looking to transfer $10,000, you might be on the hook for an up-front fee of about $300 to $500.

Balance transfer cards aren’t always the best option

There are a few reasons you should think twice before applying for a balance transfer card. The first is that there’s no guarantee you’ll get a high enough credit limit to transfer your full balance.

And even if you get a high credit limit, most cards have limits on balance transfers that may be lower than your available credit. Also, most issuers won’t allow you to transfer balances from cards that you already have with them.

Your credit limit is typically determined based on certain credit factors, including the following:

  • Income
  • Credit scores
  • Payment history
  • Credit utilization
  • Housing costs

Second, applying for a balance transfer card could hurt your credit scores due to the hard inquiry. For example, every time you apply for a new credit card, you’ll likely receive a hard inquiry on your credit reports. A hard inquiry will lower your scores right away, but it usually only affects your scores for a short period of time.

And while the inquiry may remain on your reports for up to two years, it likely won’t affect your scores for that period of time. Also, if you end up closing the card you transferred the balance from, your scores could go down, as this will affect your credit utilization and the age of your credit history.

Lastly, you may not get approved for a balance transfer card if your credit scores are too low. Before you apply for a card, check out Credit Karma Approval Odds, a feature designed to help you gauge the likelihood of getting approved for some specific credit cards.

An alternative to balance transfer cards

If you want to consolidate your credit card debt but aren’t sure about doing a balance transfer, consider personal loans as an alternative. Whereas credit cards come with variable interest rates, personal loans may offer you better terms with fixed rates and fixed monthly payments.

If you can manage to qualify for a lower interest rate on a personal loan, you can save money on interest as you pay down your debt. But even if you get a low interest rate, you’re still paying more than what you’d pay with a 0% introductory APR on a balance transfer card — as long as you can pay off the balance transfer during the promotional period.

So consider both options carefully, and use a debt consolidation calculator to see exactly how much you could save with a personal loan.

If you think you can pay off your balance before your promotional rate expires, a balance transfer can be a great option, says Aggerwal. “If not, consider how quickly you plan to pay down the balance after the promotional period expires and compare that to the total cost of a personal loan.”


Bottom line

While the idea of using a credit card to pay another credit card sounds appealing, it’s not as simple as making your monthly payment. Some balance transfer cards may offer attractive 0% introductory APR promotions, but the drawbacks may outweigh the benefits for some.

“Keep an eye out for balance transfers with no fees, 0% interest during the introductory period and a low rate after the intro period expires,” says Aggerwal.

If you’re considering consolidating your credit card debt, consider both balance transfer cards and personal loans as a possible solution. Do the math to get an idea of how much you can save on interest and when you could be debt-free, and go with the option that works best for your needs.


About the author: Ben Luthi is a personal finance freelance writer and credit cards expert. He holds a bachelor’s degree in business management and finance from Brigham Young University. In addition to Cr… Read more.

Total Rewards® Visa® Credit Card review: Not a gamble if you’re a Caesars fan

The Total Rewards® Visa® Credit Card is no longer available. For other options, check out our list of the best hotel credit cards with no annual fee.

If you’re a member of the Caesars Entertainment Total Rewards® program and are looking for ways to boost your rewards both in and out of the casino, the Total Rewards® Visa® Credit Card is worth considering.

Even if you don’t have plans to visit Las Vegas in the near future, there are almost 40 participating resorts and casinos in the U.S. and Canada where the Total Rewards® Visa® Credit Card could help offset your stay. This includes Harrah’s, Caesars and Horseshoe locations.

What we like

Heads up

  • No annual fee
  • Earn 10,000 bonus reward credits after you spend $750 outside of a Total Rewards destination in the first 90 days of being approved
  • Reward credits can be transferred to Wyndham Rewards® points (and vice versa)
  • Spend $10,000 in the current calendar year and qualify for the VIP Access Pass
  • The card’s participating casinos are currently found in only 13 states (and a location in Ontario, Canada)
  • The variable APR for purchases can be 24.24%, 19.24% or 15.24%, depending on your creditworthiness
  • Balance transfers and cash advances have a high variable APR of 27.24%
  • Late payment and returned payment fees could cost you up to $38 each

  1. The rundown: Everything we like about the Total Rewards® Visa® Credit Card
  2. Heads up: What you should consider before applying for the Total Rewards® Visa® Credit Card
  3. Do the math: How to get the most out of the Total Rewards® Visa® Credit Card
  4. Bottom line: Is the Total Rewards® Visa® Credit Card right for you?

The rundown: Everything we like about the Total Rewards® Visa® Credit Card

The Total Rewards® Visa® Credit Card earns you reward credits that you can use to comp your hotel, food and entertainment purchases at participating Total Rewards locations. With your everyday spending, you’ll earn reward credits that you can put toward your next trip to a Total Rewards location, and you’ll get an extra boost on your earnings when you spend inside Total Rewards resorts and casinos.

Here’s a breakdown of the rewards you can earn.

  • 5 reward credits for every $1 spent inside Total Rewards resorts and casinos and on tickets purchased through TR Live Events
  • 2 reward credits for every $1 spent on gas, groceries and airline purchases
  • 1 reward credit for every $1 spent on everything else

There’s also a chance to rack up the reward credits with a sign-up bonus. You can earn 10,000 reward credits after you use the Total Rewards® Visa® Credit Card outside of a Total Rewards resort or casino and spend $750 within the first 90 days of being approved for the card.

Heads up: What you should consider before applying for the Total Rewards® Visa® Credit Card

Currently, Total Rewards casino and resort locations are found in only 13 states, plus one location in Ontario, Canada. To really maximize your reward credits earning potential, you’ll need to spend in Total Rewards locations. If you don’t live close to one or aren’t planning a trip, it may not make sense for you to get this card.

On top of that, your rewards can expire unless you earn one reward credit at least once every six months.

Also, the variable APR for purchases can range from 15.24% to 24.24%. Pay off the full balance of the card by the due date each month to avoid paying interest charges. 

Do the math: How to get the most out of the Total Rewards® Visa® Credit Card

A major perk of the Total Rewards® Visa® Credit Card is the opportunity to boost your Total Rewards membership status.

The Total Rewards® program has four tiers, determined by the tier credits you earn each year.

  • Gold: 0+ tier credits
  • Platinum: 5,000+ tier credits
  • Diamond: 15,000+ tier credits
  • Seven Stars®: 150,000+ tier credits

Tier credits are different from rewards credits and are earned when you gamble, shop, eat and stay at participating Total Rewards locations. Each tier comes with more perks.

If you have Gold status, you can really maximize the Total Rewards® Visa® Credit Card by making your first purchase in the first 90 days of approval. This will get you upgraded to Platinum. Here’s what you’ll enjoy with Platinum status.

  • A complimentary stay at Atlantis, Paradise Island in the Bahamas
  • A 15% discount at participating spas and gift shops within casinos
  • Preferred pricing at participating Total Rewards restaurants
  • Exclusive presale access for certain shows
  • Complimentary valet and self-parking at various Total Rewards destinations, including Las Vegas and Atlantic City

You’ll keep your Platinum status for the rest of the year that you upgraded for it. To keep up your Platinum status for the following year, you’ll need to spend $5,000 at Total Rewards locations in the current calendar year to qualify.

If you’re already a Platinum, Diamond or Seven Stars® member, the Total Rewards® Visa® Credit Card is a little less enticing. You’ll receive a one-time buffet pass when you make your first purchase with your new card in the first 90 days of approval.

Total Rewards members of any status can benefit from another one of the card’s perks, though: Spend $10,000 in a calendar year and you’ll qualify for the VIP Access Pass. That’ll get you VIP line access to restaurants, taxis, clubs, pools and more across Total Rewards Las Vegas locations.


Bottom line: Is the Total Rewards® Visa® Credit Card right for you?

If you’re a Total Rewards member and can maximize your spending in the 5x category, it could be worth it for you to get the Total Rewards® Visa® Credit Card. But if you don’t find yourself at a Total Rewards location that often, it may not be worth applying for.


About the author: Claire Tak has a background in editorial content marketing and strategy and writes about credit cards, paying off debt and saving money. She’s obsessed with travel and audiobooks. Read more.

Are your credit card rewards safe from fraud?

You might know how much money you have in the bank, but how well do you keep track of your credit card rewards?

An estimated $100 billion in loyalty points go unredeemed, according to a 2017 Bond Brand Loyalty report sponsored by Visa. Those points could be used to buy airline tickets, book hotels, or even pay for entertainment and dining, but instead they’re left to expire or languish in neglected accounts.

The problem appears to be rooted in a simple lack of knowledge. According to the Bond report, 57% of loyalty program members don’t know their points balance. So if you’re scratching your head and wondering how many points and miles are in your account … well, at least you’re not alone.

Unfortunately, that’s why loyalty programs may be ripe for the same type of theft normally associated with credit card fraud. You won’t miss points you didn’t know you had in the first place, right?

“There are billions of dollars in points sitting in loyalty programs,” says Barry Kirk, vice president of loyalty at Maritz Motivation Solutions, which helps companies like Southwest and Marriott design their rewards programs. “But the average person wouldn’t know if $100 worth of points went missing from their account.”

As Kirk sees it, consumers need to start taking loyalty theft as seriously as they take credit card fraud and other forms of ID theft, suggesting that criminals may think it’s easier to steal points than to steal from, say, your bank account.


How might criminals steal points and miles?

A 2017 Maritz Motivation Solutions study unearthed a shocking statistic that seems to back up Kirk’s claim: 7% of consumers claim their loyalty points have been stolen.

While most loyalty programs aren’t quick to admit their consumers’ accounts have been compromised, you don’t have to look far to find reports of successful hacks. Accounts with popular airline rewards programs, such as British Airways, Lufthansa and Air India, have allegedly fallen victim to hackers in recent years, as have accounts with hotel brands such as IHG and Hilton Honors.

Beware of credit card fraud

Because many loyalty programs are tied to credit cards, credit card fraud represents one way criminals might try to steal your hard-earned points and miles. They could hack into your account through a data breach, guess your password, or simply grab your purse and run.

Once they have access to your credit card and loyalty program information, they could try to rack up points and miles with fraudulent purchases. Before you notice what’s happening and report the theft, they could transfer those rewards (plus any other points you earned on your own) to untraceable gifts cards and make off with their loot.

“It’s a double whammy, because they steal your card and get what they buy on it,” Kirk says. “Plus they take all of the rewards they earn with the fraudulent purchases.”

How to guard against credit card fraud

Certain protections, such as the Fair Credit Billing Act, limit your liability for unauthorized charges on your credit card. But these same protections may not cover credit card rewards points or miles.

Kirk also warns that thieves continue to invent new ways to hack into reward accounts, so there’s no foolproof way to protect against them all.

“Fraudsters will be creative about it,” he says.

What steps can loyalty programs take to prevent fraud?

The good news is that loyalty programs are beginning to take note.

For years, according to Kirk, credit card companies treated the theft of points and miles as a “hush-hush” situation. But the industry has gradually come to realize that it can’t ignore the problem.

Here are a few ways they may be tackling loyalty theft and credit card fraud in general. 

Point-transaction history

Certain loyalty programs may monitor your point-transaction history to determine if you’re earning or redeeming points more rapidly than usual.

“This will be your best clue as to whether a transaction is out of the ordinary,” according to Chargebacks911, which advises online merchants on how to deal with fraudulent charges.

Social media

Though it takes a bit more legwork, monitoring a customer’s social media accounts is another way loyalty programs may be able to confirm a customer’s purchases.

If you post Instagram photos during your trip to France, for example, then redeeming points for a ticket to Paris is not so suspicious. But a ticket to China during the same time you’re in France might raise red flags. 

Hire hackers

Who better to catch a hacker than another hacker?

Through United Airline’s “bug bounty” program, the airline rewards hackers with free airline miles if they notify United about any vulnerabilities they unearth within the MileagePlus® loyalty program.

Hacker Ryan Pickren, to use one remarkable example, claims he has earned about 20 million miles by helping United find more than 100 bugs in their system.

What steps can you take to reduce your risk?

It’s important to think of your loyalty points as if they’re actual money — and protect them as such.

Here are some common-sense ways to help protect your points and miles.

  1. Keep track: If you track your points and miles as closely as you monitor your bank accounts, you’re more likely to notice if they go missing.
  2. Create a strong password: You should also set up a strong password. For added security, think about using a different password for each account you have. And consider including letters, numbers and special characters. Avoid using passwords that contain personal information or easy-to-guess phrases like “12345” or “Password.”
  3. Stay off public Wi-Fi: Think twice before you access your loyalty account from an unsecured public Wi-Fi network. Consider investing in a VPN, or virtual private network, to create a secure, encrypted connection to help throw off would-be hackers.
  4. Fight fraud with free ID monitoring from Credit Karma: Credit Karma’s free monitoring and alerts can help you spot signs of identity theft.

“It’s less about what to do if you’re a victim, and more about making sure you aren’t a victim,” Kirk adds. “You don’t want to deal with recovering all your points after the fact. You just want to make sure it doesn’t happen in the first place.”


Bottom line

Don’t forget about your points.

It’s easy to lose track of your credit card rewards, but paying closer attention could make all the difference.

“You should know how many points and miles you have at any given time,” Kirk says. “Once you begin to view your loyalty currency as part of your overall financial picture, you’ll be focused on protecting those points as seriously as you would protect your savings account.”


About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.

Citi® Diamond Preferred® Card review: Long intro offer for balance transfers and purchases

Updated December 8, 2020

This date may not reflect recent changes in individual terms.

Editorial note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted. Availability of products, features and discounts may vary by state or territory. Read our Editorial Guidelines to learn more about our team.

Written by: Tim Devaney

Pros

  • No annual fee
  • Long intro APR for balance transfers gives you time to pay down debt

Cons

  • No rewards for extra value after you pay off your balance
  • Balance transfer fee

4 things you should know about the Citi® Diamond Preferred® Card

Here’s a quick breakdown of the Citi® Diamond Preferred® Card’s key features.

The long intro APR period could help you pay off your debt

The Citi® Diamond Preferred® Card could help you pay off your existing credit card debt with its introductory balance transfer offer.

The card comes with a 0% intro APR on balance transfers for 18 months from the date you make your first transfer. After the intro period expires, you’ll be charged a variable APR of 14.74% – 24.74% on balance transfers.

But keep in mind that the intro 0% balance transfer APR offer only applies to transfers made within the first four months of account opening.

You’ll also be charged a balance transfer fee of 3% (minimum $5) based on the amount of each transfer, which could create a large upfront cost if you have to transfer a sizable balance.

While the card’s balance transfer fee is high, the length of this offer makes it a good option for people who want as much time as possible to pay off their credit card debt without interest. It’s rare to see a card with an intro balance transfer period of 18 months.

Intro offer could help with large purchases

The Citi® Diamond Preferred® Card offers a 0% intro APR on purchases for the first 18 months from account opening. When the intro period expires, you’ll be charged a variable APR of 14.74% – 24.74% on purchases.

While we don’t recommend carrying a balance if you can avoid it, this offer could help you out if you have a large purchase you’d like to pay off over time, or if you have to cover an unexpected expense that throws off your budget.

You won’t be distracted by rewards

The Citi® Diamond Preferred® Card isn’t a rewards credit card and has no connection to the Citi ThankYou® rewards program, so you won’t earn any rewards or cash back.

But that’s not necessarily a bad thing. Instead of tempting you to spend more money just to earn rewards, the Citi® Diamond Preferred® Card encourages you to focus on paying off your balance.

Unfortunately, that also means you might need to look for another card if you want to start earning rewards after paying off your balance. Otherwise, you’ll have to be OK with using your card as a payment option, not a way to earn something extra.

No annual fee to hold you back

If you’re trying to get out of debt, paying an annual fee for a balance transfer card might seem like it defeats the purpose.

So it’s important to note that the Citi® Diamond Preferred® Card comes with a $0 annual fee.

Think of it as one less obstruction on your path to getting out of debt.

Take a close look at the fine print

Citibank puts up a few more stumbling blocks that could trip up even the most responsible cardholders.

  • The 0% APR intro offers don’t mean you can take your time making payments. You still have to make minimum payments each month by the due date.
  • If you pay late, or pay less than the minimum, you could lose the intro APR and be hit with a much higher penalty APR. You could also be charged late fees.
  • Even if you’re approved for the card, your balance transfer request could be declined.
  • Even if your balance transfer request is approved, your credit limit might not be enough to transfer your entire balance. Your credit limit will depend on your credit history, so consider that point if you apply for this card.

Who this card is good for

The Citi® Diamond Preferred® Card can lend a helping hand to people who are trying to pay off credit card debt. The intro APR offer for 18 months on balance transfers is one of the longest available, so if you’re looking for the most time to pay off credit card debt, you might want to give it a look.

But that doesn’t mean this card is the right choice for everyone. Whether you want to transfer a balance or make a large purchase, the Citi® Diamond Preferred® Card demands close attention and a clear understanding of the potential interest charges. If you don’t read the fine print, you might end up accumulating more debt than you had when you started.

Not sure this card is for you? Consider this alternative.

If the Citi® Diamond Preferred® Card isn’t the right fit, you might be interested in this other balance transfer credit card instead.

  • Citi® Double Cash Card:
    This card could be good for people who want to earn rewards after paying off debt.

About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.

Southwest Rapid Rewards® Premier Credit Card

Southwest Airlines Rapid Rewards® review: Big rewards for budget-minded travelers

There’s a lot to love about Southwest Rapid Rewards®, as loyal members of the Southwest Airlines rewards program will be quick to tell you.

But you don’t have to know Southwest’s route map like the back of your hand to benefit from the Southwest Rapid Rewards® program. You can rack up a ton of Rapids Rewards® points on your everyday purchases — as our review of the Southwest Rapid Rewards® Premier Credit Card illustrates.


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The real question, however, is what to do with Rapid Rewards® points once you’ve accumulated a decent amount of them.

The good news is, you may find them far easier to redeem than other airline points. You can book almost any seat on any Southwest flight with Rapid Rewards points, and you typically don’t have to worry about blackout dates or limited availability for reward flights.

Still, you may have some more questions about Southwest Rapid Rewards — especially when it comes to earning points and qualifying for the much-talked-about Southwest Companion Pass.

With that in mind, let’s go over some key things to know about earning and redeeming Southwest Rapid Rewards® points.


  • Understanding the three Southwest Rapid Rewards® status tiers
  • How much are Southwest Rapid Rewards® points worth?
  • How to earn Southwest Rapid Rewards® points

Understanding the three Southwest Rapid Rewards® status tiers

Like other airline rewards programs, the Southwest Rapid Rewards® program has several different reward status tiers.

In this case, there are three.

  • A-List
  • A-List Preferred
  • Companion Pass

Each of these status tiers has a variety of benefits for frequent flyers.

A-List status is achieved after you earn 35,000 tier-qualifying points or fly on 25 qualifying one-way Southwest flights within a calendar year. Generally, purchased points, partner points, bonus points, and points like those earned by enrolling in the Rapid Rewards program, don’t count toward A-List status. Benefits of this tier include a 25% bonus on points earned on each flight, priority boarding and check-in, and free same-day standby.

A-List Preferred is an enhanced version of A-List status. It features all the same benefits but includes free in-flight Wi-Fi when available and a 100% bonus on points earned on each flight. To qualify, you must earn 70,000 tier-qualifying points or fly on 50 qualifying one-way Southwest flights within a calendar year — and again, purchased, partner and bonus points don’t count toward achieving the status.

Companion Pass is where the real fun begins. This elite status is available to frequent flyers who earn 125,000 tier-qualifying points (through flights purchased on Southwest, Southwest Airlines Rapid Rewards credit card spending or qualifying purchases with Southwest or its Rapid Rewards partners) or fly on 100 qualifying one-way Southwest flights within a calendar year.

Southwest Companion Pass: Why the hype?

If you spend any time on frequent-flyer message boards, you’ll start to notice that the Southwest Companion Pass is one hot ticket.

So what’s the big deal with the Southwest Companion Pass? Well, it allows you to designate one person to fly with you free of ticket charges for the remainder of the calendar year in which your status is earned and the entire calendar year after that.  You’ll still be on the hook for taxes and fees for Companion Pass flights, but that’s still a pretty incredible deal.

Southwest Companion Pass holders can change their designated companion up to three times per calendar year. Additionally, the Companion Pass is valid on all Southwest flights — even those booked with Rapid Rewards points.

How much are Southwest Rapid Rewards® points worth?

The short answer is, it depends.

How many points it takes to purchase a Southwest Airlines rewards flight is determined by how much the flight costs at the time of redemption. Since the cost of airfare fluctuates regularly, so does the value of Rapid Rewards points.

Southwest Rapid Rewards points can also be redeemed toward rental cars, hotel stays and gift cards.

Can I redeem Rapid Rewards® points for international flights?

Southwest has a limited international route network. Currently, the carrier only flies between the United States, Mexico, Cuba, the Bahamas, Jamaica, Costa Rica, the Dominican Republic, Turks and Caicos, Belize, Grand Cayman and Aruba.

That being said, Southwest Rapid Rewards® points can be redeemed for international travel to any of the above destinations. We hope to see Southwest add more international cities in the future.

How to earn Southwest Rapid Rewards® points

You can earn Southwest Rapid Rewards® points a number of ways.

Spend on Southwest Airlines and its Rapid Rewards partners

Perhaps the most common way to earn Rapid Rewards points is by flying on Southwest Airlines. Wanna Get Away?® — Southwest’s lowest fare offering — earns six points per $1. For example, a qualifying $300 fare could earn 1,800 Rapid Rewards points.

Southwest’s more-premium Anytime and Business Select® fares can earn 10 and 12 points per $1, respectively.

Unfortunately, Southwest doesn’t have any airline partners, so you can’t earn Rapid Rewards® points by flying on other airlines. The good news is that you can earn points by spending with other Rapid Rewards partners, such as World of Hyatt, Hertz and Budget.

Apply for a Southwest Rapid Rewards® credit card

Southwest Airlines has three personal co-branded Rapid Rewards® credit cards: the Southwest Rapid Rewards® Plus Credit Card
, the Southwest Rapid Rewards® Premier Credit Card
and the Southwest Rapid Rewards® Priority Credit Card
.

Each of these cards comes with different benefits, such as yearly bonus points and a fast-track to A-List status.

Use Southwest’s shopping and dining programs

Like many airlines, Southwest operates a shopping portal and a dining program. These programs let you earn points on eligible purchases when shopping online at certain stores or dining at specific restaurants. You can enroll on Southwest’s website.


Bottom line

Being able to redeem award points for nearly any ticket is a huge advantage Southwest offers over other domestic airlines’ loyalty programs. It can save you money the next time you need to book a flight in a pinch.

Additionally, the Rapid Rewards program’s lucrative Companion Pass and A-List statuses can make points even more valuable for frequent flyers.

All in all, the Southwest Rapid Rewards program is a great frequent-flyer program for domestic travelers. If you’re searching for a new airline or new co-branded credit card, Southwest’s offerings are worth a look.


About the author: Andrew Kunesh is a finance and technology writer from Chicago. He’s passionate about helping others maximize their money and purchases. When he’s not writing, you’ll find Andrew travelin… Read more.

What you should know about the VantageScore 3.0 credit scoring model

Most people associate credit scores with FICO, and with good reason. And while there are many credit scoring models out there, the other main scoring model is VantageScore®.

The Fair Isaac Corporation (formerly Fair, Isaac and Company) introduced the first general-purpose credit score in 1989, and FICO® credit scores have been used in a wide range of lending decisions ever since. But FICO® scores aren’t the only credit scores you’ll see. The other main scoring model is VantageScore®, the third version of which — VantageScore 3.0 — is widely used today.


  • What is VantageScore 3.0?
  • At a glance: VantageScore 3.0 vs. other scoring models
  • How is your VantageScore 3.0 calculated?
  • How does VantageScore 3.0 compare to FICO models?
  • What is the difference between VantageScore 3.0 and VantageScore 4.0?

What is VantageScore 3.0?

As we mentioned, VantageScore 3.0 is the third version of the alternative credit score model to FICO. But to fully understand how the scoring model works, let’s take a quick step back.

It all started in 2006, when the three major consumer credit reporting bureaus — Experian, TransUnion and Equifax — teamed up to create the first iteration of the VantageScore® credit scoring model.

VantageScore went through several versions before VantageScore 3.0 debuted in 2013. The new model became so successful that approximately 40 million Americans who had previously been without a credit score are now able to get one, according to VantageScore.

The fourth and latest version of the VantageScore® model, VantageScore 4.0, debuted in 2017, but many lenders continue to rely on VantageScore 3.0.

With that in mind, let’s review some of the basic information you should know about how VantageScore 3.0 works and how it differs from other credit scoring models.

At a glance: VantageScore 3.0 vs. other scoring models

Credit factor

VantageScore 3.0 VantageScore 4.0 FICO® Score 8

FICO® Score 9

Utilization rate

Very important Very important Very important Very important

Historical utilization rate and payment info (trended data)

No impact May affect your score No impact No impact

Collection accounts

Ignores paid collection accounts Ignores paid collection accounts

 

Ignores medical collection accounts that are less than six months old

Weighs unpaid medical collection accounts less than other types of collection accounts

Ignores small-dollar “nuisance” accounts that had an original balance of less than $100

 

Treats medical collection accounts, including those with a zero balance, like other collection accounts

Ignores paid collection accounts

 

Weighs unpaid medical collections less than other types of collection accounts

A tax lien or judgment

Can have a significant impact Are less important than before, but can still have a significant impact Can have a significant impact Can have a significant impact

How is your VantageScore 3.0 calculated?

VantageScore 3.0 credit scores range from 300 to 850. Earlier iterations of the VantageScore® model featured a different range, but VantageScore 3.0 adopted the 300 to 850 range — the same range as most FICO® scores — to make it easier for lenders to use.

Though individual credit scores are based on a complex series of calculations, VantageScore does offer some insight into how the various credit factors are used to calculate a VantageScore 3.0 score.

Generally, here’s how the categories can break down.

ccupdateutilization-vantage-2Image: ccupdateutilization-vantage-2

Payment history (about 40%)

The biggest factor in your VantageScore 3.0 credit scores is payment history. In other words, are you consistently paying your bills on time, or are you frequently delinquent on your accounts?

Payment history is typically represented as a percentage showing how often you’ve made on-time payments. Given the weight of this factor, late or missed payments have the potential to significantly harm your credit scores.

Age and type of credit (about 21%)

VantageScore 3.0 also factors in how long you’ve had different types of credit accounts open. (Don’t worry — it doesn’t refer to your actual age.)

Ideally, lenders like to see long-term, established lines of credit. Having a variety of account types is a bonus — as long as you stay up-to-date on your payments — as lenders also typically like to see that you’ve used a mix of accounts on your credit responsibly.

Credit utilization (about 20%)

Credit scores are intended to help lenders get a clearer picture of the type of borrower you might be. That’s why they want to see you using a small percentage of your available credit at any given time. Experts generally recommend a credit utilization ratio of below 30%.

Balances (about 11%)

This factor refers to the total amount of recently reported balances (current and delinquent) on your credit accounts.

Lenders generally like to see low balances on your other credit accounts, as it suggests the chances of you making on-time payments each month is higher. Though the best method is to pay off your balances monthly.

Recent credit (about 5%)

Have you applied for a new credit card lately? Maybe taken out a personal loan? Lenders may want to know these types of things, as your recent credit activity, including recently opened credit accounts and credit inquiries, can be an indicator of future financial performance.

Available credit (about 3%)

Although not a huge factor, lenders typically like to see that you’re only taking out the credit that you need. According to a VantageScore® Solutions report, prime consumers keep $20,000 to $22,000 worth of credit they don’t use.

How does VantageScore 3.0 compare to FICO® models?

There are many similarities between the VantageScore® and FICO® credit-scoring models. Not only are both typically calculated on a 300-to-850-point scale (newer FICO® scores may range up to 950), but both models put a lot of emphasis on payment history and credit utilization.

For the sake of comparison, let’s take a look at how FICO weighs various factors in your credit scores. Some of these factors may have slightly different names from what we referenced above, but they refer to similar information in your credit reports.

ccupdateutilization-fico-3Image: ccupdateutilization-fico-3
  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Other factors, such as types of credit used: 10% 

While much of the information is comparable, one big difference may lie in how VantageScore and FICO evaluate data in order to generate scores, particularly for people without much credit history.

If you have little credit history, there’s a good chance you might not have a FICO® score. FICO requires at least six months of account data reported to a credit bureau within the past six months before a score can be established.

VantageScore, on the other hand, might be able to provide more people with a credit score by using just one month of history on at least one account reported within the previous 24 months.

Do you have a collection account on your credit reports? VantageScore may be a little more forgiving to your situation. Unlike the FICO® 8 credit scoring model, VantageScore 3.0 will ignore any collections account that has been paid in full. (FICO® 9 also ignores any collection account that is paid in full.)

What is the difference between VantageScore 3.0 and VantageScore 4.0?

Over time, VantageScore Solutions has adjusted its credit scoring model to better reflect consumers’ overall credit profile.

In 2017, VantageScore announced a new version of its credit scoring model: VantageScore 4.0. This new model introduces several changes that could affect your credit scores.

Here’s a summary of some of the important changes VantageScore 4.0 brings to the table.

Trended credit data

Typically, credit scores have only been able to take a snapshot of your credit reports based on how they look at a specific period of time. VantageScore Solutions claims that VantageScore 4.0 is the first and only credit scoring model to use trended data from the three major consumer credit reporting bureaus — meaning it could offer deeper, more-accurate insight into your borrowing and payment patterns.

Jeff Richardson, vice president of marketing and communications with VantageScore® Solutions, offers an example: A consumer might accumulate debt around the holidays and then purchase a new car in January. In the short term, that consumer might look like a high-risk borrower. However, going back over a longer historical period, as VantageScore 4.0 purports to do, might tell a different story. The end result could be a clearer picture of the borrower.

Tax liens, judgments and medical collection accounts might not hurt as much

In July 2017, TransUnion, Experian and Equifax adopted stricter requirements for collecting and reporting consumers’ tax liens and civil judgments. In light of that change, VantageScore 4.0 doesn’t rely as heavily on tax liens and civil judgments as some previous scoring models.

Credit scores for more consumers

VantageScore 4.0 could be welcomed by consumers with a thin or dormant credit history. VantageScore Solutions says the model leverages “machine learning techniques” to better develop scorecards for consumers with no update to their credit files in the previous six months.

The firm believes this will bolster VantageScore’s ability to accurately score 30–35 million consumers neglected by traditional scoring models.


What’s next

When it debuted in 2013, VantageScore 3.0 added a new dimension to the credit scoring model. Its successor, VantageScore 4.0, similarly aims to provide lenders a better picture of consumers’ credit.

Richardson explains that with each evolution of its scoring model, VantageScore Solutions aims to bring three key items to the market: greater accuracy, greater reach and more consistency.

Credit scores are an ever-evolving concept, but knowing how different models incorporate credit factors can help you address any issues that may arise.


About the author: Sean Bryant is a Denver-based freelance writer specializing in personal finance, credit cards and travel. With nearly 10 years of writing experience, his work has appeared in many of the… Read more.

United℠ Explorer Card

3 Chase® United® cards you should know about

These offers are no longer available on our site: United℠ TravelBank Card, United MileagePlus® Club Card


If your trip could be — or already has been — affected by COVID-19, check out the Credit Karma travel resources page for more information.

If you’re a frequent United Airlines® traveler, there are several Chase® United® cards that could help you earn United® rewards. We compare three to help you figure out the best one for you.

Chase offers such a wide variety of cards that there’s probably one that’s the best — or at least a pretty good fit — for just about anybody who uses a credit card. If you fly United and are in the market for a travel rewards card, there are three Chase® cards that feature United Airlines® rewards and other benefits.

  • United℠ TravelBank Card: an affordable choice with no annual fee and basic travel benefits
  • United℠ Explorer Card
    :
    a step up with an annual fee of $0 intro, then $95 after first year, and additional travel benefits
  • United MileagePlus® Club Card: the high-end option, with a $450 annual fee and upscale travel perks for the frequent-flyer set

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At a glance: United TravelBank Card vs. United℠ Explorer Card vs. United MileagePlus® Club Card

United℠ TravelBank Card

United℠ Explorer Card

United MileagePlus® Club Card

Annual fee $0 $0 intro, then $95 after first year $450
Sign-up bonus $150 in United® TravelBank cash after you spend at least $1,000 on purchases in the first 3 months from account opening 40,000 bonus miles if you spend $2,000 on purchases in the first 3 months from account opening 50,000 bonus miles if you spend $3,000 on purchases in the first 3 months from account opening
Earning rewards
  • 2% in TravelBank cash per $1 spent on tickets purchased from United
  • 1.5% in TravelBank cash per $1 spent on all other purchases
  • 2 miles per $1 spent on tickets purchased from United, at restaurants and eligible delivery services, and on hotel stays
  • 1 mile per $1 spent on all other purchases
  • 2 miles per $1 on tickets purchased from United
  • 1.5 miles per $1 spent on all other purchases
Variable APR for purchases & balance transfers 15.99%–22.99% 16.49% – 23.49% 18.24%–25.24%
Travel perks 25% back as a statement credit for onboard food and beverage purchases on United-operated flights
  • Priority boarding
  • First checked bag is free when you use your card to purchase your ticket
  • United Club℠ membership
  • Premier Access®
  • First and second checked bags are free when you use your card to purchase your ticket

  1. Best for rewards value
  2. Best for card benefits
  3. Best for annual fee
  4. Heads up: What to consider when applying for a Chase® United® card
  5. Bottom line: Which Chase® United® card is right for you?

Best for rewards value

If you use your card for everyday purchases, the United MileagePlus® Club card can help you rack up rewards faster than the other two cards.

Let’s assume you spend $25,000 per year on everyday purchases with your card (that’s about $2,083 per month). Setting aside the sign-up bonuses and extra points for United® travel purchases, here’s what you would earn with each card.

Card Rewards earned on $25,000 in purchases in a year
United℠ TravelBank Card $375 TravelBank cash rewards credits
United℠ Explorer Card 35,000 reward miles
United MileagePlus® Club Card 37,500 reward miles

Spend more than $25,000 annually and the United MileagePlus® Club Card pulls even further ahead.

Best for card benefits

Which card comes with the best benefits depends on how much you travel, how committed you are to United, and how much you enjoy the various United® travel benefits that come with these cards.

If you’re a devoted and frequent United® traveler, the pricey-looking United MileagePlus® Club Card could offer the best benefits for your lifestyle. If you’re a United® fan but don’t travel often, either of the other two cards might be the best choice for you.

Best for annual fee

With no annual fee, the United℠ TravelBank Card certainly looks like the winner. But the United℠ Explorer Card offers you a nice package of United travel benefits for a relatively modest annual fee of $0 intro, then $95 after first year.

With the United℠ Explorer Card, you and an eligible companion can each check your first standard bag for free, worth up to $140 on a round trip.

How to maximize the benefits of the United MileagePlus® Explorer Card

The United MileagePlus® Club Card might look like a loser with its $450 annual fee, but if United’s premium travel perks make your life on the road a lot more comfortable and convenient, that fee could be very reasonable.

Heads up: What to consider when applying for a Chase® United® card

All of these Chase® United® cards come with identical transaction and penalty fees.

  • Balance transfer fee: 5% (minimum $5) of the transferred balance
  • Cash advance fee: $10 or 5% of the cash advanced, whichever is higher
  • Late or returned payment penalty fees: up to $39, depending on the payment amount.

Take note: Balance transfers, cash advances and certain other transactions don’t qualify for mileage or TravelBank rewards.

On the upside, none of these cards comes with a foreign transaction fee. That’s a nice money-saving benefit if you use your card outside the U.S.


Bottom line: Which Chase® United® card is right for you?

Here’s a key question to ask yourself before you apply for a Chase® United® card: What kind of traveler and spender am I?

If you travel frequently and use your card often, a premium travel card such as the United MileagePlus® Club Card or another travel rewards card might be a must-have for you.

If your travel takes place mainly in your imagination, a cash back credit card or one with a low-cost balance transfer opportunity might be more valuable for you than a travel rewards card that offers you airline miles or other travel benefits you probably won’t use.

Travel rewards vs. cash back: How to choose the right card for you

If you’re somewhere in between those two ends of the spectrum, look for a card with a low or no annual fee and a nice assortment of travel rewards that can help you get where you want to go.

 


About the author: Marcie Geffner is an award-winning freelance reporter, editor, writer and book critic. Her work has been featured online and in print by the Chicago Sun-Times, Fox Business Network Onlin… Read more.

Journey® Student Rewards from Capital One®

2 great credit cards for students with little to no credit

This offer is no longer available on our site: Journey® Student Rewards from Capital One®

When it comes to credit, college students often find themselves at a disadvantage. Factors such as a short credit history and high debt can make it tough to qualify for a credit card.

That’s a problem, because a credit card can be a great tool to help build credit. And good credit can come in handy if you want to qualify for a low-interest auto loan, move to a new apartment or even buy a home someday.

So if responsible use of a credit card can help you build credit, but qualification for a credit card can depend on credit history … how do you get started?

Applying for a student credit card, and using it responsibly, is one way to get started on the right track.

What is a student credit card?

Eric Black, financial coach with Financial Freedom Mentors, explains what makes student credit cards different from other types of credit cards.

“Typically, student credit cards have much lower credit limits than other credit cards,” he says. “However, the requirements to get approved are also typically less stringent, since most students have little to no credit history.”

Student credit cards can also come with financial education, tools like payment reminders and rewards designed especially for students, such as a cash-back boost for making payments on time or for getting good grades.

So yes, you may be able to apply for a credit card even if you’re a student with little to no credit. With that in mind, let’s take a look at some of the best student credit card options available.


1. Journey® Student Rewards from Capital One®

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Journey® Student Rewards from Capital One®

Journey® Student Rewards from Capital One®

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Who’s it for?

Students who want to build good habits. Capital One offers some extra motivation to use this card responsibly, as you can earn a cash-back boost for on-time payments. 

Why we like it

When building credit, it’s crucial to always make your monthly credit card payments on time. Late or missed payments can significantly harm your credit scores, because creditors often view it as behavior that might mean you’re less responsible with credit.

­­The Journey® Student Rewards from Capital One®
card offers multiple incentives to stay on top of your payments.

Though you’ll earn 1% cash back on all your eligible purchases, you can boost that total to 1.25% for every billing cycle in which you make at least the minimum payment on time.

As an added incentive, you may be eligible for a credit limit increase after six months of on-time payments. A credit limit increase can also help build your credit, as a higher limit can lower your credit card utilization ratio.

Watch out for

Though the Journey® Student Rewards from Capital One® card is designed for students, you may still need some form of income to qualify for this card. If your monthly income doesn’t exceed your monthly rent or mortgage payment by at least $800, you may not qualify.

Another thing to watch out for is the relatively high variable APR. This card comes with a variable 26.99% APR for purchases and balance transfers. That means if you carry a balance on your card from month to month, you could be stuck paying a ton in interest charges.

As a rule of thumb, you should aim to pay off your balance on time and in full each month to avoid interest charges. If you think you may end up carrying a monthly balance from time to time, this may not be the right credit card for you.

Read our full review of the Journey® Student Rewards from Capital One®.

How to use it

Practicing healthy credit habits can pay off with the Journey® Student Rewards from Capital One® card. Making your minimum monthly payments on time may help you achieve a credit limit increase in a relatively short time period.

And for added benefits, take it one step further. If you pay off your full balance on time each month, you’ll likely be able to maximize your cash back rewards while avoiding steep interest charges.

2. Deserve® EDU Mastercard


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Deserve® EDU Mastercard

Deserve® EDU Mastercard

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Who’s it for?

Students with no prior credit history — especially international students.

Why we like it

The Deserve® EDU Mastercard
gives college students a chance to start from scratch. This card offers international students the opportunity to qualify for a credit card without having a Social Security number.

For the international student who plans to make overseas trips back home, this card has a few additional benefits. It comes with Mastercard Platinum benefits such as ID theft protection. And foreign transaction fees? None.

And then there are the rewards. As a Deserve® EDU Mastercard cardholder, you’ll get 1% cash back, as statement credits, on all eligible purchases. You’ll also get one year of Amazon Prime Student (a lifetime value of $59) when you use the card to spend $500 in the first three billing cycles and use it to register for the service.

Read our full review of the Deserve® EDU Mastercard.

Watch out for

This card comes with a few limitations that may deter some users.

If you’re planning on using your credit card for a balance transfer or cash advance, you’ll have to look elsewhere, as Deserve® EDU Mastercard offers neither. And take note of the card’s 18.74% variable APR for purchases.

How to use it

Deserve® EDU Mastercard is a great tool to help you start establishing a positive credit history, with responsible use, while earning cash back.

To maximize your rewards, use Deserve® EDU Mastercard to make any purchases you know you can easily afford to repay by the monthly due date. And don’t forget to use the card if you sign up for Amazon Prime Student membership.

What if you can’t qualify for a student credit card?

Even if your current credit situation makes it difficult to qualify for a student credit card, you still have options.

People with limited or no credit may still qualify for secured credit cards.

Black says that secured credit cards are a great place to start, because they help “prevent overspending and teach good spending habits early on.”

Remember: If you’re struggling to build credit from scratch, you’re not alone. Check out the Credit Karma Guide to Building Credit for additional tips to help get you on the right track.


Bottom line

Bad credit doesn’t have to stick with you forever.

Students with little or no credit — yes, even some students without a Social Security number — may have some options to help get things started.

Your first credit card may be a student card with high interest rates and a low credit limit, but with responsible use you may be able to work your way up to other cards that better suit your needs — and better reflect your financial progress.

Still unsure of where to go from here? Get started today by checking your VantageScore 3.0 credit scores from TransUnion and Equifax for free on Credit Karma. The sooner you get the ball rolling, the sooner you can work on getting your credit in A+ condition.


About the author: Sarah C. Brady is a San Francisco–based financial consultant, workshop facilitator and writer. In addition to writing for Credit Karma, Sarah writes for Experian, LendingTree, Magnify Mo… Read more.

Visa vs. Mastercard: What’s the difference?

So you’ve decided you want to open a new credit card. But how do you decide which card is right for you?

There are many options when it comes to selecting a credit card, but one option people tend to overlook is which network the card belongs to. Visa and Mastercard are two of the biggest credit card networks in the U.S. You’re probably familiar with both names, but what exactly are they — and how do they differ? Let’s take a look.


  • What is a credit card network?
  • How did Visa and Mastercard conquer the credit industry?
  • Visa vs. Mastercard: Which is better?
  • What other options do you have?

Let’s start with the basics: What is a credit card network?

As we noted in our article on credit card companies, there are two main players in the credit card industry: credit card issuers and credit card networks.

Credit card issuers, like Chase and Citi, approve your credit card application, set your credit limit and interest rates, and take your monthly payments. They also offer rewards and perks that vary depending on the card.

Credit card networks, on the other hand, authorize and process the transactions you make with your card. These payment networks essentially connect cardholders with merchants and banks, allowing for a seamless experience when you use your card at a merchant that accepts it.

Credit card networks include Visa and Mastercard. Interestingly, Discover and American Express are combination companies that issue cards and have their own transaction networks. This article will focus on Visa and Mastercard, since they are the largest networks in the world.

How did Visa and Mastercard conquer the credit industry?

In 1958, Bank of America launched BankAmericard® credit card, the first consumer credit card with a “revolving credit” feature, giving the cardholder the option to either pay off their balance in full at the end of each billing cycle or carry a balance from month to month. This is generally how unsecured credit cards work today.

Bank of America joined with other issuing banks to create National BankAmericard Incorporated. After expanding internationally, BankAmericard decided to change its name to Visa. Today, Visa operates in more than 200 countries and territories. At the end of 2016, there were more than 3 billion Visa cards around the world and about 44 million merchants who would accept them.

Mastercard was the brainchild of a group of banks that came together to form the Interbank Card Association in 1966. It didn’t acquire the name Mastercard until 1979, but it has since expanded to make up a significant share of the U.S. market. Today Mastercard offers many different types of credit cards, and these cards are accepted in more than 210 countries and territories around the world.

Just how big are these two credit card networks? Together, Visa and Mastercard accounted for a whopping 75% of U.S. credit card purchase volume in 2017, according to a February 2018 study by the Nilson Report. Factor in debit purchases, and their combined market share jumps up to 85%.

With size comes increased capabilities and resources. Merchants and consumers seeking benefits such as purchase protection, zero liability for unauthorized charges and (perhaps most of all) convenience thus tend to gravitate toward Visa and Mastercard.

Visa vs. Mastercard: Which is better?

That’s not necessarily an easy question to answer. Both credit card networks offer wide acceptance and competitive benefits, but let’s try to break it down a bit.

Acceptance

There may be a few significant differences between Visa and Mastercard, but acceptance isn’t one of them. Both cards are widely accepted in the U.S. and in more than 200 countries and territories globally.

Even though both cards are accepted around the world, some banks and countries will occasionally strike up exclusive product partnerships with one or the other. For example, in 2015 National Australia Bank announced a 10-year exclusive contract with Visa.

The good news is that these types of partnerships typically don’t affect your ability to use either type of cards with merchants. Both Visa and Mastercard are widely accepted in Australia.

Technology

When it comes to tech, you won’t find a yawning gap between these two companies. Both continue to innovate new technologies such as contactless payment, more commonly known as “tap and pay.”

Both companies also emphasize security in online shopping, with technologies designed to promote safe online transactions.

Verified by Visa works behind the scenes when you shop online to sniff out when you might not be the one making the purchase. If you use a new device or make an especially large purchase, you may be asked to provide more information to confirm that purchase.

Similarly, Mastercard SecureCode® generates a private code for your Mastercard account to use when online shopping. Though it works slightly differently than Verified by Visa, both technologies offer an additional layer of security at checkout.

Cardholder benefits

Visa and Mastercard vary slightly in the benefits they offer cardholders.

What really matters, however, is which kind of Visa or Mastercard credit card you apply for. Each company offers several tiers of credit cards, with benefits that get more impressive as the tiers ascend.

Here’s a basic breakdown of each company’s tiers based on a few of their cards. Note that the list of benefits for each card below is not exhaustive, but it should give you a good idea of what each tier offers.

  Visa Visa Signature® Visa Infinite® Mastercard World Mastercard® World Elite Mastercard®
Lost or stolen card reporting
Emergency card replacement & emergency cash dispersal
Auto rental collision damage waiver      
Price protection      
Zero liability protection
Roadside Dispatch      
Free shipping with ShopRunner        
Warranty manager service        
Professional travel services        
Trip cancellation/trip interruption coverage        
24/7 concierge          
Lost luggage reimbursement          
Travel accident insurance          

The verdict

When deciding on a credit card, look at each card individually. Determine which benefits, interest rates and rewards are most beneficial to you, and base your decision on those factors — consider the payment network after that.

If you’re still unsure about which network is right for you, you may want to start with our lists of the best Visa credit cards and the best Mastercard credit cards.

What other options do you have?

As we mentioned above, Visa and Mastercard are credit card networks that don’t issue their own credit cards.

Other credit card companies, such as American Express and Discover, issue credit cards and operate payment networks. Both of these companies can offer specific benefits or perks on their cards, and sometimes have exclusive affiliations with particular merchants. Because of the way American Express and Discover operate their payment networks, these credit cards aren’t as globally accepted.

Where are my credit cards accepted?

How do I choose the best card for me?

Think about where you spend your money. You want a card that complements your spending habits and rewards you for your financial choices. If you plan on carrying a balance (which we don’t recommend), you’ll also want to steer clear of credit cards with high interest rates.


Bottom line

Visa and Mastercard both have a lot going for them. Each offers advanced payment technology, security features while online shopping, and high global acceptance rates.

So what’s a responsible credit card shopper to do? Instead of focusing on Visa vs. Mastercard, focus on the benefits associated with individual cards.

“There are differences between specific cards … but the uniqueness is driven by the benefits the individual banks (and sometimes their cobrand partners) provide,” says Joe Stanish, co-founder of the budgeting app Honeyfi.

If you start by determining the type of rewards you prefer and the interest rates you can live with, you should be able to find the right card for your wallet.


About the author: Ashley Chorpenning is a personal finance writer and content creator. In addition to being a contributing writer at Credit Karma, she writes for solo entrepreneurs and Fortune 500 compani… Read more.

The best prepaid cards: Credit Karma's picks

Credit Karma Guide to Prepaid Debit Cards

If you want to avoid debt, need help with budgeting or don’t have a bank account, a prepaid debit card could be a helpful tool. In this guide, we’ll help you consider the pros, cons and different options of prepaid cards so you can decide if getting one is right for you.


Good news for those without a credit card or bank account: debit and credit cards aren’t the only plastic payment options out there.

Prepaid debit cards are an alternative payment method. They help give consumers the freedom to pay for purchases online or on the phone, in addition to in-store purchases, without needing a credit card or bank account. You can also use your card to pay bills online. And they offer features you may not get with a debit or credit card.

While prepaid cards may sound like a perfect solution, they also come with some drawbacks — such as charging fees or lacking helpful attributes that come with debit and credit cards.

Don’t worry, though. In this guide, you’ll learn some of the important aspects you should know about prepaid debit cards — the pros, the cons and your options — so you can determine for yourself whether it’s worth getting one.


How do prepaid debit cards work?

Also known as pay-as-you-go cards, prepaid debit cards allow you to spend only what you load onto the card. You can typically add money via direct deposit, bank transfer, mobile check deposit or cash reloads. Though how you can use the reloaded funds may vary by card and there could be fees involved.

Once you’ve loaded money on the card, you can then use your prepaid card just as you would a debit or credit card. (Except, of course, once you’ve used up the amount you loaded onto the card, you’ll need to add more to use the card again.) But just like other plastic payment methods, prepaid cards use payment networks like Visa, Mastercard, Discover and American Express.

Just remember: Unlike credit cards, prepaid cards don’t offer credit lines. And unlike debit cards, they’re not tied to a checking account.

How to get a prepaid debit card

Depending on which card you want, there are a few different ways you can apply.

  • In-store: Some retailers, like Walmart, allow you to purchase and load money onto a new prepaid card.
  • Online: Many prepaid cards allow you to apply through their websites.
  • At a branch: Some banks, like Chase and Wells Fargo, offer prepaid cards that you can apply for at your local branch.

Who uses prepaid debit cards?

According to a 2015 survey by the Pew Charitable Trusts, there are three main groups of people who use prepaid cards: the unbanked, the debt-averse and the budgeters.

The unbanked

“[Prepaid debit cards] often serve workers who don’t have a regular checking account,” says Adam Rust, managing director of WiseWage, a nonprofit organization that helps connect consumers with the right prepaid or payroll cards.

“Many people identify these consumers as unbanked. I like to break it down further into the formerly banked, the never banked and [currently] unbankable,” Rust says.

According to a 2015 survey by the Federal Deposit Insurance Corporation, people don’t have a bank account for a variety of reasons, including the following:

  • Lack of privacy
  • Mistrust of banks
  • Bank account fees
  • Identification, credit or former-bank-account problems
  • Inconvenient hours and locations
  • Insufficient funds to keep in an account

The debt-averse

Prepaid debit cards don’t offer a line of credit, so you can’t rack up debt with one the same way you can with a credit card . If you’ve had issues with overspending in the past or you want to avoid the temptation altogether, a prepaid debit card may help.

Prepaid debit cards don’t offer a line of credit, so you can’t rack up debt with one the same way you can with a credit card.

Keep in mind, however, that some prepaid debit cards do come with optional overdraft protection, so it is possible to overdraw your account and incur a fee.

QUICK GUIDE

How can I avoid overspending with a credit card?

It’s possible to go into debt with a credit card, but you don’t have to. Here are a few things you can do to help get the benefits of credit while minimizing the drawbacks.

Create and live on a budget. Keeping your spending in check is key here. After all, you can overspend even without a credit card. By setting some spending limits for yourself each month and keeping track of where your money is going, it could be easier to know when to stop spending.

Pay off your balance in full each month. High-interest debt can cripple your financial future, so try to avoid it entirely by paying your statement balance every month. 

Use an app. Apps like Debitize can help you essentially turn your credit card into a debit card. The tool connects to your credit card and checking accounts and deducts the amount of the transaction you make with your credit card from your checking account every da, and then pays your bill at the end of the month.

ShowHide

The budgeters

Since you can only use the amount you’ve loaded on your prepaid card, it can be easy to use it as a budgeting tool. For example, you can load a certain amount onto the card every week and force yourself to stay within that budget.

In addition, if you use the cash envelope budgeting system, you could use your prepaid card for some of the larger spending categories. For example, you could use cash for restaurants and entertainment and use your prepaid card for groceries and gas. That way you’re not carrying around hundreds of dollars in cash every day.

Lastly, some prepaid debit cards offer a way to spend as well as save using subaccounts, or separate accounts under your main account.

“A consumer can instruct the bank to automatically move money from the spend side to the subaccount on a regular basis,” Rust says. “It’s a great habit to set aside money for a rainy day, and this is a need that these subaccounts can fulfill.”

Advantages and disadvantages of prepaid debit cards

Prepaid debit cards have their purposes, but they’re not the perfect choice for everyone. To help you decide if they’re right for you, consider the pros and cons.

Advantages

There are several prepaid cards out there with different features and perks, but they all come with the following three benefits.

Little risk of going into debt

The only way you can go into debt with a prepaid card is if you overdraw your account. At that point, you may be charged a fee, and you would owe the bank the amount you overdrew.

But remember, if a prepaid card offers overdraft protection, it’s usually optional. So as long as you don’t opt in when signing up, there’s no risk of spending more than you load onto the card.

No credit check

Since there’s no credit element to a prepaid debit card, there’s no need for a credit check. As a result, the major issuers of prepaid cards don’t run a hard inquiry on your credit reports (a hard inquiry has the potential to lower your credit scores).

This can be especially helpful if you’ve recently filed for bankruptcy or have other negative items on your credit reports that could decrease your chances of getting approved for a regular credit card.

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Family friendly

One of the perks of some prepaid cards is that you can create subaccounts for your family or other users. For example, you can set up subaccounts for your teenager or college student and set spending and ATM limits. You can also use the cards to pay allowances.

For some families, this can be a better setup than adding your children as an authorized user on your credit card or giving them access to a checking account, where you have fewer controls in place due to most credit cards not allowing you to set spending limits on authorized users.

Disadvantages

Although prepaid cards have a lot of good features, they’re not a good fit for everyone. Here are the main drawbacks to consider.

Fees

Many prepaid debit cards come with a slew of fees, including monthly fees, ATM fees, cash reload fees, transaction fees and more.

Fortunately, some prepaid cards charge fewer fees than others (we’ll share a few later on). But if you don’t like the idea of paying for something that you could do for free with cash or a free checking account, a prepaid card might not be worth it.

No credit building

Since you’re not making payments as you would on a credit card or loan, there’s nothing for the prepaid card issuer to report to the consumer credit bureaus. If you want to build credit, consider using a secured or unsecured credit card instead.

Fewer protections

With a checking account, your account is insured for up to $250,000 in deposits by the FDIC in case the bank fails. In contrast, not all prepaid cards offer the same protection.

There’s also no guarantee with some prepaid cards that you’ll be protected from fraudulent purchases the way you are with most credit cards and debit cards in the case of errors, loss or theft. The Consumer Financial Protection Bureau has finalized a new rule that requires fraud protection on prepaid cards (but it won’t go into effect until April 1, 2019). In the meantime, your card balance could be vulnerable.

How to choose the right prepaid debit card

As you’re shopping around for a prepaid card, it’s important to look at the fees and features for each card.

“A key step is to understand how you will use the card,” Rust says.

If you only plan to add money to the prepaid card with direct deposit, it might not matter if the card you choose charges for cash reloads.

For example, if you only plan to add money to the prepaid card with direct deposit, it might not matter if the card you choose charges for cash reloads. Or if you plan to spend a lot, getting a prepaid card with cash back rewards can make up for the fees and even provide you some extra cash.

There’s no one-size-fits-all best prepaid debit card out there, so look at several to make sure there aren’t any features you’re missing out on.


What’s next?

If you’re wondering whether a prepaid debit card is right for you, there’s no right or wrong answer.

To help you make the right choice, consider your goal. If it’s to build credit, think about opting for a secured credit card instead. But if it’s to avoid the temptation of overspending, to get some help with budgeting or to use plastic without being tied to a bank account, a prepaid card might be a good option.

If you already have a prepaid debit card, take a second look at it to make sure it’s the right one for you. Compare it with some of the top prepaid cards to see if it measures up. The more time you spend finding the right one, the more value you could get out of the card in the long run.

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About the author: Ben Luthi is a personal finance freelance writer and credit cards expert. He holds a bachelor’s degree in business management and finance from Brigham Young University. In addition to Cr… Read more.